Schell Publishing received a $70,000 promissory note at 12% ordinary interest for 60 days from
one of its customers. After 20 days, Schell discounted the note at the bank at a discount rate of 14.5%.
The note was made on March 21.
What amount of interest did the customer pay?What amount of interest did Schell make?What amount of interest did the bank make?
To find the amounts of interest paid by the customer, earned by Schell Publishing, and earned by the bank, we need to break down the steps and calculate them separately.
First, let's calculate the interest paid by the customer:
Step 1: Find the maturity date
Since the note was made on March 21 and has a term of 60 days, the maturity date is May 20.
Step 2: Calculate the interest period
The interest period is from March 21 to May 20, which is 60 days.
Step 3: Calculate the interest amount
The interest rate is 12% per annum (ordinary interest), which needs to be adjusted to reflect the 60-day time period. We can use the formula:
Interest = Principal x Rate x Time
Interest = $70,000 x (12% / 365) x 60
Now, let's calculate the interest earned by Schell Publishing and the bank:
Step 4: Find the discount period
The discount period is from March 21 to April 10 (20 days).
Step 5: Calculate the discount amount
The discount rate is 14.5%, which also needs to be adjusted to reflect the 20-day period. We can use the formula:
Discount = Principal x Rate x Time
Discount = $70,000 x (14.5% / 365) x 20
Now, let's substitute the values into the formulas to calculate the respective amounts:
Interest paid by the customer:
Interest = $70,000 x (12% / 365) x 60
Interest = $560
Interest earned by Schell Publishing:
Interest = $70,000 x (12% / 365) x 20
Interest = $153.42 (rounded to two decimal places)
Interest earned by the bank:
Interest = $70,000 - $70,000 x (1 + (14.5% / 365) x 20)
Interest = $4,746.58 (rounded to two decimal places)
Therefore, the answers to the questions are:
- The customer paid $560 in interest.
- Schell Publishing earned $153.42 in interest.
- The bank made $4,746.58 in interest.